Volume 2: Reaching Higher: Canada's Interests and Future in Space – November 2012

Part 3
Analysis and recommendations (continued)

Chapter 3.2
Conducting procurements

Public procurements have been a catalyst for the Canadian space sector from its inception. Because government has always been a major client for space assets and expertise, the emergence and growth of the Canadian space industry—and of research and academic programs with a space focus—have been inextricably tied to purchases by the federal government, either for its own projects or for initiatives undertaken in cooperation with other countries' space agencies, especially NASA and, to a lesser extent, the ESA.

This does not mean that the majority of the industry's revenues come directly from Canadian governments; in fact, only about one-fifth of domestic revenues do, and the industry generates half its revenue from sales outside the country, making it one of the most export-oriented in the world. But most sales abroad involve proven products and services, particularly in the fields of satellite communications, Earth observation, and data processing.

When it comes to major technological advances and establishing market credibility, the role of public procurement remains key. Although the situation is gradually changing, few private investors are prepared to assume the costs and risks required to create something new for space, and none has the government's ability to demonstrate a new product's capability through the achievement of "flight heritage."

That said, public procurement obviously cannot be predicated exclusively on strengthening the indigenous space sector. It also has to be about meeting the operational requirements of user organizations and getting the best value for taxpayers. These three broad goals—price, performance, and industrial capacity—are the same as those identified in the companion volume on aerospace when it examines public procurement of aircraft.

Attaining these goals demands that, once clear priorities and plans have been established for the Canadian Space Program, the scope of each specific project be established early and requests for proposals create incentives for lower costs, more innovation, and the involvement of Canadian companies and research institutions.

Recommendation 5: Early project scoping

Because space assets take years of sophisticated development, construction, and testing—and are often designed to accommodate multiple payloads for multiple purposes—there has been a tendency for original project scopes to expand, resulting in cost escalation and delays.

The project scope should be:

• set at a level specific enough to ensure that the asset delivers required services, but general enough to give bidders flexibility to propose a range of approaches to meeting those requirements—in practice, this will mean specifications that are more performance-based and less detailed than those that have typically been used to date;
• approved by the senior executive officer of all organizations involved in funding and/or using the asset, for example, deputy ministers for federal departments; and
• fixed upon approval, unless extraordinary circumstances justify a later revision.

Scope and project management are critical for a successful space program. Any scope changes, timeline extensions, or draws on a project contingency should require approval at the senior executive officer/deputy minister level.

Recommendation 6: Competitive bids that encourage innovation, control costs, and build the Canadian industry

The conventional approach used to procure space assets and services for government purposes in Canada has seen limited competition and a relatively high degree of involvement by CSA officials throughout the design and manufacturing process.

When technologies were in their infancy and Canadian industrial capacity was limited, this may have been appropriate. It helped to build the Canadian space sector and ensure that the government got the assets it needed. But budgets have tightened, technologies have matured, and there is a deeper pool of industry capability, all of which warrant modernizing our approach to acquiring space assets.

Those assets could include more small satellites, which cost a fraction of what major satellites do, can be designed and built relatively quickly, and are increasingly capable of providing valuable data and services. While some applications will always require a larger platform, the goal of maximizing value for money when buying space equipment and services can be advanced by considering all technological and hardware options and determining the optimal mix for each project.

Arriving at that optimal mix will be facilitated by soliciting and considering a range of approaches each time the government contemplates a space-related procurement. In any sector—as the Competition Policy Review Panel^{Footnote 4} noted in 2008—competitive intensity spurs innovation and produces better results at lower prices for customers. This is true not only when customers are individual citizens, but also when the federal government makes purchases on behalf of the people of Canada. While the number of major companies in the space business will always be relatively small—given the costs and complexities entailed in designing and manufacturing space assets—there are now enough players to generate healthy competition for the public's space dollars.

Competition need not mean an erosion in the commitment to leverage public procurements to strengthen the Canadian space sector. As long as the sector relies to a significant degree on such purchases—and as long as other countries treat space procurements as exempt from trade rules and use them to foster their own sectors—positive impacts on the Canadian space industry and research community should be a consideration when public resources are used to buy satellites and other space equipment and services.

Canada's space companies do not oppose competition as long as it is fair, balanced, and transparent. Indeed, properly managed, more competition should be of benefit to both the government as purchaser and the Canadian space sector, as it will spur innovation and give firms the opportunity to forge a range of partnerships as part of bid development.

To keep costs down, creativity up, and indigenous capacity strong, any company or consortium of companies that satisfies a significant Canadian content threshold should be permitted to bid for the federal government's space business. Bidders should be encouraged to propose innovative solutions to meet the government's requirements—something that will be helped by having those requirements scoped at a relatively general level, as described under the previous recommendation.

Each proposal should be required to include a detailed explanation of concrete industrial and technological benefits for the Canadian space sector. Benefits may accrue from the direct participation of Canadian companies and research institutions as leaders of, or partners in, the bid; from firm commitments to source systems and components from Canadian companies; and from investments in research and skills training related to the project. Projected benefits should be assessed for their impacts on the Canadian space sector's technological capabilities and ability to develop and sell products and services in Canada and abroad. Bid selection should consider these impacts, along with a bid's total cost and capacity to meet users' needs.

In instances where efforts to encourage increased competition do not bear fruit and there is only one bidder—due, perhaps, to the specific requirements of the project and the limited number of players in the industry—special measures may be required to ensure that costs are reasonable and the benefits to the Canadian space sector are meaningful. These measures may include benchmarking the price of the bid against the cost of comparable projects carried out in other countries and raising the Canadian content thresholds.

In all cases, the procurement process should be led by Public Works and Government Services Canada (PWGSC), the federal agency with the deepest expertise in major government purchases. The CSA should provide technical advice to PWGSC—in conjunction with all organizations involved in the project—and should liaise with PWGSC and the vendor during the design and manufacturing phases to ensure that milestones are being met. In most cases, however, the CSA should not be directly involved in those design and manufacturing activities. Less emphasis should be placed on continuous technical oversight by the CSA, and more on the establishment and enforcement of firm contractual obligations for product development and delivery, with meaningful penalties for under- or non-performance. The onus for proposing and delivering assets and services should rest with the companies that bring forward bids. The government should act as a savvy customer rather than an overweening supervisor.

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Footnotes